!!! The!Retirement!Crisis!In!Maryland! Testimony!on!Maryland!Private!Sector!Employees!Pension!Plan!and!Trust! Dr.!Teresa!Ghilarducci!and!Kate!Bahn!!! We!know!that!the!traditional!defined!benefit!pension!system!has!been!largely! replaced!by!a!system!of!voluntary!defined!contribution!retirement!plans!like! 401(k)s!and!IRAs.!!What!is!less!common!knowledge!is!how!this!change!in!the! retirement!savings!system!affects!workers!coverage!overall!and!how!well!current! workers!in!maryland!are!able!to!prepare!for!retirement.!! The!Schwartz!Center!for!Economic!Policy!Analysis!paper! Are!Maryland!Workers! Ready!for!Retirement?!Trends!in!Plan!Sponsorship,!Participation,!and! Preparedness!has!found!that!Maryland!workers!have!experienced!a!significant! decline!in!retirement!plan!sponsorship!that!will!inevitably!put!them!at!risk!for!an! income!insecure!retirement.!this!means!that!maryland!workers!are!at!risk!for! downward!mobility!when!they!retire.!! Based!on!our!calculations!using!the!Census!Current!Population!Survey,!between! 2000!and!2010,!the!availability!of!employerTsponsored!retirement!plans!in! Maryland!declined!by!eight!percentage!points,!from!67!percent!to!59!percent.!!The! only!workers!who!appear!to!be!faring!relatively!better!are!those!who!are!currently! covered!by!a!collective!bargaining!agreement!at!work.!although!these!workers!still! experienced!a!decline!in!sponsorship!in!the!past!ten!years,!their!levels!remain!high! at!86!percent!in!2010.!!! In!addition!to!not!being!sponsored,!additional!Maryland!workers!employers!may! have!sponsored!a!plan!but!they!did!not!participate.!in!total,!nearly!half!of!maryland! workers,!1.25!million!people,!do!not!currently!have!a!retirement!plan!because!they! were!either!not!sponsored!or!they!did!not!participate.!furthermore,!those!who!are! not!currently!working!by!definition!did!not!have!access!to!an!employertsponsored! retirement!plan,!so!they!are!unable!to!save!for!retirement!through!employert sponsored!savings!vehicles!while!out!of!work.!! Using!the!Survey!of!Income!and!Program!Participation!(SIPP),!we!also!calculate!that! workers!are!increasingly!being!covered!by!defined!contribution!plans!compared!to! defined!benefit!plans.!the!type!of!retirement!plan!offered!at!work!affects!the! likelihood!of!participating!in!a!plan!when!it!is!offered!and!therefore!the!probability! of!having!adequate!retirement!savings.!defined!benefit!(db)!plans!guarantee!the! level!of!benefits!received!upon!retirement!and!define!contribution!(dc)!plans!do!
not.!of!those!who!work!for!an!employer!that!sponsors!a!plan,!42!percent!report!that! their!primary!plan!is!a!db!plan!and!58!percent!report!that!their!primary!plan!is!a!dc! plan.!!! Plan!type!coverage!also!varies!by!worker!characteristic.!Younger!workers!aged!25!to! 44!have!the!highest!rate!of!DC!participation!with!a!64!percent!DC!plan!participation! rate,!and!the!rates!of!dc!participation!decline!in!each!subsequent!age!group.!only!36! percent!of!workers!aged!25!to!44!had!a!db!plan!as!their!primary!employert sponsored!retirement!plan,!compared!to!43!percent!of!workers!aged!45!to!54!and! 53!percent!of!workers!aged!55!to!64.!! To!understand!the!impact!of!the!current!retirement!system!structure!in!Maryland,! we!have!looked!at!the!financial!security!of!those!near!retirement,!ages!55!to!64,!to! estimate!what!their!financial!wellbeing!will!likely!be!in!retirement!under!the!current! system.!based!on!our!projections,!if!the!status!quo!is!maintained!in!maryland,!twot fifths!of!those!near!retirement!age!will!not!have!saved!enough!for!retirement!in! retirement!savings!accounts!and!other!assets!and!will!have!to!live!almost!entirely!on! Social!Security!Insurance,!which!will!not!be!able!to!adequately!replace!their!preT retirement!income.!!!! Retirement!plan!coverage!is!correlated!with!asset!building,!so!that!those!who!are! already!vulnerable!due!to!lack!of!retirement!plan!coverage!also!tend!to!have!little!in! the!way!of!assets!that!they!could!annuitize!for!a!cash!income!stream!during! retirement.!the!median!maryland!household!without!a!retirement!plan!has!amassed! only!$30,000!in!assets!and!they!do!not!have!a!db!plan!to!fall!back!on.!using!fidelity! Investment s!guaranteed!income!calculator,!we!calculate!that!the!annuitized!value! of!$30,000!is!$41!per!week!for!a!male!individual!who!is!turning!65!yrs!old!and!$34! per!week!for!a!married!couple!household!where!both!members!are!turning!65!as!of! 2013.!This!is!a!meager!sum!and!it!means!that!these!households!will!have!to!rely! almost!entirely!on!social!security!benefits!to!fund!their!retirement!years.!! Using!data!from!the!SIPP,!we!estimated!the!likely!replacement!rate!of!nearT retirement!maryland!workers,!ages!55!to!64,!after!they!retire!based!on!the!current! levels!of!retirement!plan!savings,!income!and!wealth.!the!replacement!rate!is!the! ratio!of!current!income!to!projected!retirement!income!from!current!funds!in! retirement!plan!funds,!other!assets!that!can!be!annuitized!and!estimated!social! Security!benefits.!!Most!retirement!experts!agree!that!replacement!rates!should!be! at!least!70!percent!of!final!salary.!we!calculated!that!individuals!who!participate!in!a! DB!plan,!with!replacement!rates!in!the!range!of!95!to!121!percent,!depending!on! their!income!quintile,!and!achieve!an!income!replacement!rate!that!retirement! advisors!suggest!is!necessary!for!households!to!maintain!their!standard!of!living!in! retirement.!we!calculated!that!individuals!with!dc!retirement!plans!will!have! replacement!rates!of!34!to!70!percent.!those!who!do!not!currently!participate!in! any!retirement!plan!at!work!will!have!replacement!rates!of!33!to!51!percent.!in! other!words,!maryland!workers!who!don t!have!access!to!a!retirement!plan!at!work! will!realize!a!replacement!rate!of!less!than!half!of!their!pretretirement!income,!
which!is!much!less!than!the!recommended!amount!and!signifies!downward!mobility! in!retirement.!! Policies!that!help!all!workers!gain!access!to!employmentTbased!retirement!savings! vehicles!can!help!to!reverse!some!of!the!erosion!in!future!retirement!income!that! our!findings!indicate.!! Reference:!! SaadTLessler!Joelle,!Ghilarducci,!Teresa,!&!Schmitz,!Lauren!(2013).!Are!Maryland! Workers!Ready!for!Retirement?!Trends!in!Plan!Sponsorship,!Participation!and! Preparedness.!Retrieved!from! https://docs.google.com/file/d/0b35b9afh6zgzwuhyofdwoutzmle/!!
Are Maryland Workers Ready for Retirement? Trends in Plan Sponsorship, Participation, and Preparedness Joelle Saad-Lessler, Teresa Ghilarducci, and Lauren Schmitz
01 OVERVIEW The weak economic climate has left many people in Maryland addition to the basic level of insurance provided by Social Security 1, Maryland workers depend on the accessibility and affordability of Even when an employer-sponsored retirement plan is available, This paints a bleak picture of the future of retirement income security 41 percent of households in which the head is near retirement Social Security income or will not be able to retire at all due to
02 decline in employer sponsorship of retirement plans and the shift
03 Section One: RETIREMENT PLAN SPONSORSHIP BY EMPLOYERS Employers have traditionally played an retirement plan for their employees plays type of plan to offer, how much they want to contribute to the plan, and, in the case The employer also decides whether to uses a formula that typically credits every The employer invests the assets and employees can contribute to on a voluntary the level of contribution can vary from year to year and employers are not required to This employer-sponsored system of way to save for retirement income compensation devoted to retirement asset the temptation to spend this portion of an
Employer Sponsorship of Retirement Plans in Maryland is Declining 04 This report uses data from the Current The CPS asked Maryland residents who worked in the previous calendar year all results are robust, three years of data yield information on sponsorship levels in employer-sponsored retirement plans has trend in retirement security for Maryland worked for an employer who offered access did not have access to a retirement plan A Note on Sponsorship Rates The CPS asks respondents about their access to employer-sponsored retirement not have access to an employer-sponsored plan, the sponsorship rates in this report overstate the rate of sponsorship for the
Figure 1: Employer-Based Retirement Plan Sponsorship Rates 68% 67% 59% 54% 2000 2010 Figure 2: Employment Status and Sponsorship Rates for Maryland Residents, 2009-2011 Worked in 2009-2011 82% 41% Employer does not sponsor a retirement plan (1,044,711) Did not work in 2009-2011 18% 59% Employer sponsors a retirement plan (1,503,365) 2010 Maryland Population (Aged 25-64) = 3,107,410
Analyzing the Downward Trend in Employer Sponsorship 06 decline in retirement plan sponsorship was not equal across all social and economic workers in almost all social and economic percent decline in sponsorship rates, more for workers in entertainment and recreation decrease in sponsorship for workers in workers in Maryland (9 percent of the establish retirement plans for themselves,
07 Maryland had a sponsored plan, and that rates because more workers are employed both of these characteristics have historically meant better access to pension retirement plan sponsorship by 4 percent, suffered a 9 percent drop in sponsorship
Table 1. Retirement Plan Sponsorship Rates by Social and Personal Worker Characteristics in Maryland Industry Union Status Gender Age Race Firm Size Citizenship Working Poulation 2,404,136 2,548,076 6% Total Sponsored Male Female 25-44 45-54 55-64 67% 59% 66% 59% 67% 60% 66% 57% 69% 62% 64 % 62% 08-11% -11% -10% -13% -11% -2% White 69% 63% -9% Black 67% 61% -9% Asian 54% 56% 4% Hispanic 39% 31% -20% 1-24 Employees 30% 27% -12% 25-99 Employees 58% 52% -10% 100-499 Employees 70% 64% -8% 500-999 Employees 75% 63% -16% 1000+ Employees 86% 80% -8% Citizen 69% 63% -9% Non-Citizen 40% 34% -15% Self-Employed Government 1999-2001 2009-2011 % Change 25% 18% -29% Private Sector Wage/Salaried 65% 56% -13% 89% 86% -4% Construction 48% 36% -25% Manufacturing 76% 70% -9% Transport, Communications, Utilities 65% 62% -5% Wholesale & Retail Trade 53% 49% -8% Finance, Insurance, Real Estate 68% 67% -2% Business & Repair Services 59% 51% -13% Personal Services 30% 31% 6% Entertainment & Recreation Services 58% 43% -26% Professional Services 75% 67% -10% Public Administration 92% 84% -9% Covered by union contract 90% 86% -4% Not Covered by union contract 70% 64% -9%
Section Two: EMPLOYEE PARTICIPATION RATES Even if an employer sponsors a retirement a retirement plan if they have less than one year of service, are part-time, or are worker participation is usually mandatory, percent participated in the plan; in other participated in an employer-sponsored sponsored retirement plans either because their employer did not offer one or the employee did not participate for voluntary or were not able to participate in an employer- information about the type of plan workers workers in Maryland whose employers work for an employer that sponsors a plan,
Figure 3: Sponsorship and Participation Rates for Working Maryland Residents 2009-2011 10 Sponsored 59% 14% Not participating Not sponsored 41% 86% Participating
11 Figure 4: Primary Retirement Plan Type in Maryland, 2009 70% 58% 42% 0%
12 Given the importance of retirement plan type when it is offered and thereby the likelihood probe further to learn which workers have social, personal, or economic characteristics by Social, Economic, and Personal are much more likely to have access to a employer-sponsored retirement plan,
13 Figure 5: Primary Retirement Plan Type by Age Group in Maryland, 2009 70% 64% 43% 57% 53% 47% 36% 0% 25-44 45-54 55-64
Section Three: WHAT THE FUTURE HOLDS FOR THOSE NEAR RETIREMENT AGE 14 This report describes how a decline in employer sponsorship of retirement plans in retirement plans and, potentially, the readiness for retirement must take into bonds, stocks and mutual funds, life This data allows us to compute a understand retirement preparedness based do not factor in the present cash value of of near-retirement households located in Maryland, whose reference person is households have more time to accumulate worth may or may not reflect the level of preparedness they will have when they
15 Table 2: Primary Retirement Plan Type by Age Group in Maryland, 2009 Ages 55-64 Single Person Married Couple Other Households Average $282,325 $687,027 $268,236 Median $184,800 $584,190 $138,100 net worth of near-retirement households near-retirement households in Maryland can thus be converted to a cash income stream net worth of the same households yields the home, and its entire net worth can be needed, however, because the net worth
16 calculations include home equity, and it is unrealistic to assume that most retired homeowners will sell their homes and from the attachment most retirees have for their homes, in many cases it would assets of the near-retirement population in that can be easily liquidated and converted for a married couple where both members retirement households in Maryland have too fact, the median household income of household income of households with no many assets as median households with tabulation, it would seem that households is that many people have no retirement
17 Table 3: Total Liquid Assets of Near-Retirement Households, Aged 55-64, in Maryland, 2009 Total Household Liquid Assets No. of Households Percent of Total Households Mean Household Income Median Household Income Less than $10,000 55,903 15% $22,821 $17,952 $10,000 - $99,999 94,377 26% $42,522 $35,616 $100,000 - $299,999 92,590 25% $89,817 $82,260 $300,000 or more 124,312 34% $144,434 $109,200 TOTAL 367,182 100%
18 Table 4: Total Assets of Near-Retirement Households in Maryland by Retirement Plan Status, 2009 Households With DB Plans Households with DC Plans Households without a retirement plan through current employer Mean Median Mean Median Mean Median Investments $284,643 $148,100 $143,735 $75,000 $138,541 $30,000 Other Assets Retirement Savings Debt Total Assets Less Debt $85,999 $0 $22,073 $0 $46,942 $0 $111,268 $55,000 $116,681 $73,138 $32,858 $0 $9,234 $2,000 $9,980 $1,100 $5,255 $0 $472,575 $201,100 $272,509 $147,038 $213,086 $30,000 Number of Households Home Equity Household Income 114,462 91,273 161,447 $217,997 160,000 $197,768 $190,000 $198,788 $125,000 $127,340 $101,484 $102,783 $69,360 $56,871 $42,120
19 or 44 percent of households, have no The median household without a retirement couple household where both members are and it means these households will have to of households based on the types of plans they participate in, it does not reveal whether achieve an income replacement rate that for households to maintain their standard of not currently participate in any retirement reach anywhere near the recommended words, individuals who participate in a currently participate in a retirement plan replacement rates, even if they save for plans are more likely to maintain a middle and those without a retirement plan at work
Table 4a: Replacement Rates of Near Retirement Households by Earnings Quintile and Primary Retirement Plan Type (2013) Earnings Primary Retirement Plan Type Replacement Rate 105% 62% - Replacement Rate 99% 70% 51% 20 $1-$25,872 DB DC None $25,873-$40,476 $40,477-$62,352 Replacement Rate 95% 70% 39% $62,353-$89,004 Replacement Rate 103% 43% 33% $89,005+ Replacement Rate 121% 34% 29% A Note on Retirement Planning and Household Composition
21 Total Table 5: Retirement Plan Statistics and Asset Accumulation for Workers Age 25-64 by Household Composition, 2009 Married Workers Population Sponsorship Rate Participation Rate if Sponsored Primary Plan is a DB Plan 1,285,481 75% 87% 41% Primary Plan is a DC Plan 59% Average Current Net Worth $301,106 Married Workers With Neither Spouse Participating in a Retirement Plan Primary Plan is a DB Plan Primary Plan is a DC Plan Average Current Net Worth $236,185 Married Workers With One Spouse Participating in a Retirement Plan 0 0 Primary Plan is a DB Plan Primary Plan is a DC Plan 45% 55% Average Current Net Worth $288,544 Married Workers With Both Spouses Participating in a Retirement Plan Primary Plan is a DB Plan 38% Primary Plan is a DC Plan 62% Average Current Net Worth $358,593 Single Workers Total Population 362,264 Sponsorship Rate 79% Participation Rate if Sponsored 81% Primary Plan is a DB Plan 45% Primary Plan is a DC Plan 55% Average Current Net Worth $214,631 Single Parent Workers Total Population 209,183 Sponsorship Rate 67% Participation Rate if Sponsored 69% Primary Plan is a DB Plan 47% Primary Plan is a DC Plan 53% Average Current Net Worth $104,058
22 Figure 6: Pension Sponsorship and Participation in Historical Perspective, US and Maryland, 1980-65% 60% 55% MD Sponsorship 50% US Sponsorship 45% MD Participation 40% US Participation 35% 80-82 83-85 86-88 89-91 92-94 95-97 98-00 01-03 04-06 07-09 10-12 CONCLUSION The analysis in this report has found that employer sponsorship of retirement participation in an employer-provided retirement plan is low, and 41 percent of near retirement households in Maryland will Social Security income, or will be unable picture of retirement readiness for workers retirement sponsorship and participation rates sponsorship and participation rates fell from
23 sponsorship and participation have also fallen nationally, but that downward trend recession but are a product of more continue, it is likely that sponsorship and means that the retirement readiness is likely Employer sponsorship of retirement plans in Maryland has eroded over the past decade, Maryland workforce worked for an employer who sponsored a retirement plan for any of rates of poverty and a diminished ability for workers to maintain their standard of Our analysis further indicates that while plan sponsorship rates in Maryland is vehicles can help to reverse some of the erosion in future retirement income that our
27 Methodology pooled data from the March Supplements asks whether the respondent's union pension or other retirement plan for any of the employees, and, if so, whether the sponsorship and participation from the CPS data refer to employer-based retirement asked of respondents who worked in the The reference period is different for wave was collected in the 4th reference month wave 4 are four months apart, their samples reference month of wave 4 data for the this choice is that since there is attrition in the sample, the wave 4 sample reflects the
28 population that remained in the sample as stated that they worked at some point in the used to calculate sponsorship, participation respondents whether their primary source of income in the previous four months was businesses that were unincorporated or that Sponsorship a question about whether their employer (at the respondent says that their employer Participation in a retirement plan is their employer sponsors a retirement plan, most important retirement plan be increased or decreased because of had an individual account plan, or they one plan, the most important plan was they could choose the investments in the and employer contributions depend fully The latter characteristics were asked about
29 plan; therefore they could only be used to ascertain the nature of the most important retirement plan for those who had only one Assets of life insurance policies, equity in other properties not on the land of residence money owed to the respondent for the sale measure of current net worth Household calculations person, a spouse or unmarried partner, and reference person, once all children, other married couple households contain the reference person and their spouse, and maybe a parent; other households are not married couples, and yet have more than one member this could include unmarried the household, calculation of household net other relatives, or non-relatives who reside in the household, but does include net worth of parents and unmarried partners who household if one of the members of the
30 none of the members has a retirement plan for other households, the annuity value was calculated for a hypothetical male in annuity value was calculated for a couple are for a lifetime annuity where the survivor
31 Demographic, Social, and Economic Composition of the Working Population, Ages 25-64, 2010 Union Status Gender Age Race Firm Size Citizenship Worker Classification Industry Male Female 25-44 45-54 55-64 51% 53% 49% 47% 51% 53% 30% 28% 19% 19% White 56% 69% Black 27% 11% Asian 7% 5% Hispanic 9% 14% Other 1% 2% 1-25 Employees 29% 10% 26-99 Employees 8% 12% 100-499 Employees 11% 13% 500-999 Employees 5% 5% 1000+ Employees 46% 40% Citizen 88% 91% Non-Citizen 12% 9% Self-Employed Government Maryland 9% 10% Wage & Salary 69% 73% 22% 8% Construction 9% 7% Manufacturing 5% 11% Transport, Communications, Utilities 4% 5% U.S. Wholesale & Retail Trade 14% 16% Finance, Insurance, Real Estate 7% 7% Business & Repair Services 10% 8% Personal Services 3% 3% Entertainment & Recreation Services 2% 2% Professional Services 33% 28% Public Administration 12% 6% Covered by union contract 18% 15% Not Covered by union contract 82% 85%
Firm Size Gender Age Race Male Female 25-44 45-64 32 Detailed Analysis of DB and DC Participation by Social, Economic, and Personal Characteristics, 2009 Income Category 43% 264,655 57% 348,229 42% 244,955 58% 338,676 35% 192,636 65% 357,022 50% 299,332 50% 303,556 White 42% 321,956 58% 443,401 Black 46% 146,224 54% 169,045 Large Firm (100+ Employees) 43% 388,030 57% 508,452 Citizenship Worker Classification DB Plan Participation Rate Participating Population DC Plan Participation Rate Participating Population Citizen 43% 492,939 57% 660,419 Private Sector 38% 297, 774 62% 484,411 Government 50% 203,906 50% 199,883 Middle Income ($22,001 - $60,000) 44% 211,587 56% 265,589 High Income ($60,001+) 41% 262,365 59% 371,123
Retirement readiness of individuals based on their earnings quintile and retirement plan type Earnings $1-$25,872 Primary Retirement Plan Type DB DC None Earnings $18,000 $18,192 $- Debt $30 $575 $250 Liquid Assets $21,100 $17,500 $20,000 $16,000 Retirement Savings $2,500 $- Home Equity $- $57,500 $92,500 Value of DB Plan Yearly Payment $5,751 $- $- Replacement Rate 105% 62% $25,873-$40,476 Earnings $31,176 $30,000 $35,004 Debt $350 $1,500 $50 Liquid Assets $12,700 $105,000 $50,229 Retirement Savings $6,000 $20,937 $- Home Equity $57,500 $36,500 $50,000 Value of DB Plan Yearly Payment $14,092 $- $- Replacement Rate 99% 70% 51%
$40,477-$62,352 Earnings $53,004 $57,144 $48,000 Debt $- $2,500 $- Liquid Assets $26,500 $49,399 $3,500 Retirement Savings $15,000 $98,000 $- Home Equity $52,500 $165,000 $49,000 Value of DB Plan Yearly Payment $24,419 $- $- Replacement Rate 95% 53% 39% $62,353-$89,004 Earnings $77,004 $72,000 $72,000 Debt $2,500 $1,500 $1,750 Liquid Assets $127,000 $75,000 $10,750 Retirement Savings $44,000 $60,000 $- Home Equity $125,500 $126,500 $117,000 Value of DB Plan Yearly Payment $39,644 $- $- Replacement Rate 103% 43% 33% $89,005+ Earnings $108,000 $129,996 $125,004 Debt $- $500 $1,250 Liquid Assets $306,000 $189,500 $96,500 Retirement Savings $170,000 $85,000 $50,000 Home Equity $150,000 $125,000 $100,000 Value of DB Plan Yearly Payment $64,957 $- $- Replacement Rate 121% 34% 29%
FOOTNOTES
Schwartz Center For Economic Policy Analysis 6 East 16th Street, 11th Floor 212.229.5901 x1 scepa@newschool.edu www.economicpolicyresearch.org